Doing Business in the Slovak Republic

Transcription

1 Doing Business in the Slovak Republic 2017

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3 Doing Business in the Slovak Republic 2017

4 Preface Since gaining its independence in 1993, the Slovak Republic has been adopting new laws at a rapid pace. As a country in transition, its legal system continues to develop. Therefore, the Prague office of Baker & McKenzie and its Slovak counsel Marek & Partners have prepared the document Doing Business in the Slovak Republic as a general guide for any company or individual considering an investment in the Slovak Republic. In view of the fact that the Slovak legal landscape continues to be subject to frequent changes, this document should be taken as a general guideline intended to assist investors in understanding the overall investment climate of the Slovak Republic and should not be relied upon as legal advice. The information contained herein is general in nature and is intended to only provide an outline of Slovak law and practice. It must not be relied on in relation to any transaction as a substitute to seeking specific legal advice. The law and its practice in the Slovak Republic are constantly changing and readers should be aware that any information may soon become outdated. This remains true notwithstanding the access of the Slovak Republic to the EU on May 1, and undertaking the process of harmonization of its laws with those of the EU. We will be happy to provide you with updates on the material contained in this guide, or to provide you with further information regarding a specific industry or area of Slovak law in which you may have a particular interest. This information is not offered as legal or any other advice on any particular matter. No client or other reader should act or refrain from acting on the basis of any matter contained in this document without seeking appropriate legal or other professional advice on the particular facts and circumstances at issue. Baker & McKenzie MAREK & PARTNERS, s. r. o. 2017

5 Doing Business in the Slovak Republic Table of Contents 1. Investment Incentives and Related Issues Overview of Business Entities Income Taxation Customs Duties Audits and Accounting Labor Issues Real Estate Types of Security Interest Available in the Slovak Republic Foreign Exchange Competition Rules Environmental Protection The Slovak Securities Market Bankruptcy Laws Investment Management Register of Public Sector Partners Electronic Mailboxes Baker McKenzie i

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7 Doing Business in the Slovak Republic 1. Investment Incentives and Related Issues The information contained in this summary is primarily based on the following Slovak legislation, current as of the date hereof: Act No. 595/2003 Coll., on Income Taxes, as amended (the Income Tax Act ), Act No. 561/2007 Coll., on Investment Aid (the Investment Aid Act ), Act No. 5/2004 Coll., on Employment Services, as amended (the Employment Services Act ), Act No. 193/2001 Coll., on Support for Establishment of Industrial Parks (the Industrial Parks Act ), and Act No. 358/2015 Coll., on State Aid (the State Aid Act ). Slovak legislation provides for various investment incentives for both foreign and domestic investors, including several possibilities of applying for tax and employment incentives. 1.1 Tax Incentives Granted under the Income Tax Act For purposes of the Income Tax Act, the term taxpayer means a natural person (individual) or a legal entity. Section 30a of the Income Tax Act sets out the rules for tax incentives granted to the taxpayer following an approval decision on investment incentives issued to the taxpayer under the Investment Aid Act or de minimis state aid scheme. Under Section 30a of the Income Tax Act, the taxpayer may claim tax relief up to the amount specified in the Income Tax Act provided that the taxpayer has been issued with an approval decision on investment aid incorporating tax relief pursuant to the Investment Aid Act or de minimis state aid scheme, and the taxpayer meets the conditions laid down in the Investment Aid Act and the special conditions pursuant to the Income Tax Act or de minimis state aid scheme. The taxpayer may claim tax relief over not more than ten consecutive tax periods; the first tax period for which tax relief may be claimed is a tax period in which the taxpayer was issued with an approval decision on investment aid and the taxpayer met the conditions laid down in the Investment Aid Act and the special conditions pursuant to the Income Tax Act; tax relief, however, may not be claimed later than for the tax period in which three years have elapsed since the issuance of the decision pursuant to the Investment Aid Act. The special conditions referred to above are: during the tax periods for which tax relief is claimed, the taxpayer applied all the provisions of the Income Tax Act reducing the tax base, to which the taxpayer is entitled, in particular, by means of: Depreciation charges under the Income Tax Act; Allowances and provisions for contingent liabilities under the Income Tax Act; during the tax periods for which tax relief is claimed, the taxpayer is obligated to deduct a tax loss or a portion of the tax loss by which the taxpayer did not reduce the tax base in the previous tax periods from the tax base in an amount corresponding to the tax base; if the tax base is higher than the amount of the tax loss by which the tax base was not reduced in the previous tax periods, the tax base shall be reduced by the amount of such loss; Baker McKenzie 1

8 (iii) (iv) the taxpayer may not claim tax relief in the case of dissolution without liquidation, upon commencement of liquidation, or if a bankruptcy order has been issued or its business license has been revoked or suspended; the taxpayer shall act in compliance with provisions on adjustments of tax bases of nonresident related parties and adhere to the arm s length principle when calculating the tax base in a mutual business transaction with a related party. If the taxpayer fails to comply with any of the general conditions laid down in the Investment Aid Act or any of the special conditions specified above, except for the conditions specified in subsections and, entitlement to tax relief ceases to exist and the taxpayer is obligated to file a supplementary tax return for all tax periods in respect of which the taxpayer claimed tax relief. If the taxpayer fails to comply with the conditions specified above in subsection or, entitlement to tax relief in the relevant tax period is lost and the taxpayer is obligated to file a supplementary tax return for each tax period in which the conditions were not met. The taxpayer may claim tax relief of up to the amount that, over the tax periods for which the tax relief is claimed, does not exceed, in aggregate, the value specified for this type of investment aid in the decision on the approval of investment aid issued pursuant to the Investment Aid Act. Further, Section 30b of the Income Tax Act sets out the rules for tax incentives granted following an approval decision on investment incentives issued pursuant to Act No. 185/2009 Coll., on Incentives for Research and Development, as amended. 1.2 Incentives under the Investment Aid Act Under the Investment Aid Act, a foreign investor can apply for state aid, aimed at supporting initial investment and promoting job creation. State aid may be provided in the following forms: a subsidy for acquisition of long-term tangible assets and long-term intangible assets; income tax relief under the Income Tax Act; (iii) a contribution for creation of a new job under a special regulation; 1 (iv) transfer of immovable property or exchange of immovable property at a price lower than a general asset s value. The general conditions for the granting of investment aid in the industrial production sector, except for the sectors and operations under a special regulation 2, are the following: (iii) the acquisition of long-term tangible assets and long-term intangible assets in the amount of at least EUR 10 mil., of which at least 50% must be covered by the equity of a legal entity or assets of a natural person-entrepreneur; the acquisition of new production and technology equipment intended for production purposes with the minimum value of 60% of the total value of purchased long-term tangible and long-term intangible assets; production, activities, processes, constructions or production and technology equipment complying with the environmental protection conditions pursuant to special regulations, 1 Section 53d of Act No. 5/2004 Coll., on Employment Services, and on Amendment to and Supplementation of Certain Acts, as amended 2 Article 1(2 and 3) of Commission Regulation (EC) No. 800/2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty (General block exemption Regulation) (Official Journal of the European Union, L 214/3, August 9, 2008) 2 Baker McKenzie

9 Doing Business in the Slovak Republic (iv) (v) implementation of the investment plan will lead to the creation of new jobs; the investment plan is implemented at one location (as defined in the Investment Aid Act). If the investment plan is to be implemented in a district with the unemployment rate for the calendar year immediately preceding the calendar year in which an investment aid application was filed higher than the unemployment rate in the Slovak Republic (a) the amount specified under clause above is reduced to EUR 5 mil., of which at least 50% must be covered by the equity of a legal entity or assets of a natural person-entrepreneur; (b) the value under clause above is reduced to 50 %. If the investment plan is to be implemented in a district in which the unemployment rate for the calendar year immediately preceding the calendar year in which an investment aid application was filed is by at least 50 % higher than the unemployment rate in the Slovak Republic A. the amount specified above under clause above is reduced to EUR 3 mil., of which at least 50% must be covered by the equity of a legal entity or assets of a natural person-entrepreneur; B. the value under clause above is reduced to 40 %. If the investment plan is to be implemented by a small enterprise or a medium-sized enterprise 3, the amount specified above under clause, clause (a) or clause A) is reduced to one half. The general conditions for the granting of investment aid to technology centers are: (iii) the acquisition of long-term tangible assets and long-term intangible assets in an amount of at least EUR 0.5 mil., of which at least 50% must be covered by the equity of a legal entity or assets of a natural person-entrepreneur; at least 70% of the total work force are employees with a university education; implementation of the investment plan will lead to the creation of new jobs. The conditions for the granting of investment aid to strategic service centers are: (iii) the acquisition of long-term tangible assets and long-term intangible assets in an amount of at least EUR 0.4 mil., of which at least 50% must be covered by the equity of a legal entity or assets of a natural person-entrepreneur; at least 60% of the total work force are employees with a university education; implementation of the investment plan will lead to the creation of new jobs. The general conditions for the granting of investment aid for the tourism industry are: (iii) the acquisition of new technology equipment intended for the provision of services with the minimum value of 40% of the total value of purchased long-term tangible assets and longterm intangible assets; the acquisition of long-term tangible assets and long-term intangible assets in an amount of at least EUR 10 mil., of which at least 50% must be covered by the equity of a legal entity or assets of a natural person-entrepreneur; services, activities, processes, constructions or equipment complying with the environmental protection conditions pursuant to special regulations; 3 Annex 1 of Commission Regulation (EC) No. 800/2008 Baker McKenzie 3

10 (iv) (v) implementation of the investment plan will lead to the creation of new jobs; the investment plan is implemented at one location (as defined in the Investment Aid Act). If the investment plan is to be implemented in a district with the unemployment rate for the calendar year immediately preceding the calendar year in which an investment aid application was filed exceeds the unemployment rate in the Slovak Republic, (a) the amount specified above under clause is reduced to EUR 5 mil., of which at least EUR 2.5 mil. must be covered by the equity of a legal entity or assets of a natural personentrepreneur; (b) the value under clause above is reduced to 20%. If the investment plan is to be implemented in a district in which the unemployment rate for the calendar year immediately preceding the calendar year in which an investment aid application was filed is by at least 50% higher than the unemployment rate in the Slovak Republic, the amount specified above under clause is reduced to EUR 3 mil., of which at least EUR 1.5 mil. must be covered by the equity of a legal entity or assets of a natural person-entrepreneur. The investment incentives are granted on the basis of a decision on granting investment incentives, which is issued by the Ministry of Economy of the Slovak Republic or by the Ministry of Transportation and Construction of the Slovak Republic in the case of investment aid for the tourism industry and based on an application submitted by an investor (the Decision on Investment Incentives ). The Decision on Investment Incentives requires the prior approval of the Government of the Slovak Republic (the Slovak Government ). When approving the provision of investment incentives, the Slovak Government considers the significance of the initial investment for the national economy and the impact of the granting of investment aid on competition in the relevant market. Under the Investment Aid Act, an investment aid beneficiary is a legal entity or a natural person entrepreneur with its registered office in the Slovak Republic, registered in the Register of Public Sector Partners, if applicable, 4 and registered with the Commercial Register or the Trade Licensing Register, who will implement an investment plan in the Slovak Republic; the beneficiary must be 100%-owned by the applicant, or the applicant must be a controlling person of the beneficiary. 1.3 Employment Incentives Employment Grants An employer having received investment incentives on the basis of the Decision on Investment Incentives providing for a contribution for creation of new jobs is entitled to a contribution for the creation of jobs. The Central Office of Labor, Social Affairs and Family (the Office ) may also grant a contribution as support for creation of a job vacancy in the first regularly paid employment to an employer who will hire a candidate, younger than 25 years of age, who has been registered as an unemployed candidate for at least 3 months, or a candidate, younger than 29 years of age, who has been registered as an unemployed candidate for at least 6 months. Such an employment must be arranged in the range of at least half of the standard weekly working time and an employer must file a written application to the Office. 4 Please see Section 15 regarding information on the Register of Public Sector Partners 4 Baker McKenzie

11 Doing Business in the Slovak Republic Training Grants An employer may ask the relevant district labor office for a contribution for general or specific training of its employees. The training grant may be granted up to the amount set out in Commission Regulation (EC) No. 651/2014, subject to the condition that the employee will be employed by the employer for at least 12 months from the end of general or specific training or if the training is carried out as part of measures designed to prevent or reduce mass lay-offs Transportation Grants An employer may ask the relevant district labor office for a contribution for transportation of its employees to work, if the employer provides for daily transportation of its employees to work due to the reason that mass transportation is demonstrably not operating at all or it is not operating to the extent appropriate for the needs of the employer. The transportation grant may be granted up to 50% of the costs incurred with respect to transportation of the employees. 1.4 State Aid Legislation The State Aid Act determines only basic rules for the provision of state aid due to the fact that the legislation in the area of state aid and minimal aid has been adopted by the European Union based on Article 109 of the Treaty on the Functioning of the European Union. The State Aid Act sets forth that the authority of coordinator for aid is exercised by the Antimonopoly Office of the Slovak Republic. Moreover, pursuant to the Act, the details of the provided state aid and minimal aid are recorded in the new Central Register, established as of January 1, Please note that the investment incentives described above (including the tax incentives described in Section 1.1 hereof) are considered to be state aid under the State Aid Act. As a result, in order to be granted investment incentives, investors must also meet the conditions set forth in the State Aid Act. 1.5 Industrial Parks So called industrial parks, i.e. special areas, equipped with the necessary infrastructure and facilities for performing industrial activities (production) or services, exist in the Slovak Republic. Such industrial parks are developed either by private investors or municipalities. Under the Industrial Parks Act, a municipality may receive certain subsidies from the Slovak Government for establishing an industrial park within the territory of such a municipality. Since the Slovak Investment and Trade Development Agency (SARIO) plays an important role in the process of establishment of industrial parks by municipalities and also collects information on industrial parks developed by private investors, we believe that detailed information on existing or contemplated industrial parks could be best obtained during a meeting with the representatives of SARIO. Baker McKenzie 5

12 2. Overview of Business Entities The Commercial Code recognizes several forms (legal structures) of business entities available for doing business in the Slovak Republic. An incorporated business entity in the Slovak Republic is a legal entity (an artificial person) that has been incorporated through a registration process established by legislation. The legal personality of such entities is separate and distinct from that of any of its owners or management. 2.1 Principal Characteristics The purpose of the following section is to provide a general overview of the principal characteristics of Slovak business entities (companies). a. Statutory Sources of Authority A legal entity is a creature of statute; it and its managers and agents have only such authority to act as is conferred by or pursuant to statutes (principally the Commercial Code), or legally permitted provisions of the articles of incorporation or bylaws. Foreign entities may also establish branches in the Slovak Republic with especially favorable treatment for business entities from European Union Member States and OECD member countries. The most commonly used corporate forms are the limited liability company and joint stock company. Effective as of January 1, 2017, a foreign entity may also be incorporated as a new type of corporate form, a simple joint-stock company, described in more detail in section below. Finally, foreign individuals may also do business in the Slovak Republic on the basis of a trade license issued by the Slovak Trade Licensing Office. b. Foundation and Incorporation In general, both individuals and legal entities may establish a Slovak company. However, an individual or legal entity may become a shareholder (participant) with unlimited liability only in one company. The Slovak companies are established through adoption of Articles of Incorporation or Foundation Deed (if established by a single person), or adoption of a resolution on establishment of a Slovak branch office (in the case of a branch office). The founders may contribute to the registered capital either in cash or through in-kind contributions (e.g. real estate, IP /IT rights, assets, etc.). Once all statutory conditions are fulfilled (for example, a company or branch has obtained a trade license or other type of authorization to perform business activities in the Slovak Republic, or the registered capital has been paid, if required), the competent District Court will register the company with the Commercial Register. A company is incorporated, and thus acquires legal personality, on the date of its registration with the Commercial Register. c. Entity Powers, Separate Legal Personality, Criminal Liability As a separate legal entity, an incorporated business entity can enter into contracts in its own name, sue and be sued, own or transfer property, or be held criminally liable. Under Act No. 91/2016 Coll. on Criminal Liability of Legal Entities (the Criminal Liability of Legal Entities Act ), a criminal act is committed by the legal entity if it is committed in its favor, in its name, within the scope of its activities or if it is committed by its statutory body or a member of 6 Baker McKenzie

13 Doing Business in the Slovak Republic the statutory body or the person performing control in or supervision of the legal entity or (iii) any other person authorized to represent or decide on behalf of the legal entity. The criminal liability of the legal entity is not conditional upon finding the individuals mentioned in the section above criminally liable. The criminal liability of the legal entity does not cease to exist in the cases where the legal entity has commenced a bankruptcy proceeding, has entered liquidation, or has been wound up. The Criminal Liability of Legal Entities Act specifically sets forth criminal acts and punishments applicable to legal entities. d. Licenses for Performing Business Activities In general, all business entities are required to hold a trade license (or one of the special licenses or authorization) entitling them to perform business activities. The established company must apply for such a license to the trade department of the relevant district office, before its incorporation. The type of business license required depends on the object(s) of business of the branch or legal entity. Certain activities such as banking, insurance and broadcasting require special licenses and permits issued directly by the relevant state authority, such as the National Bank of Slovakia ( NBS ). In addition, since certain categories of activities require fulfillment of qualification and educational requirements (so-called craft trades (in the Slovak language: remeselné) or qualified trades (in the Slovak language: viazané), when applying for the business license, a legal entity must employ a responsible person (in the Slovak language: zodpovedný zástupca), who meets the qualification criteria as stipulated by the Trade Licensing Act and is a Slovak resident. The responsible person has to be an employee of the legal entity or its shareholder/participant. No qualification criteria apply to free trades (e.g. the sale of goods, consulting services); such trades are to be notified to the Trade Licensing Office only. Subject to obtaining the trade license or other authorization to carry on business, the company is incorporated on the date of its registration with the Commercial Register maintained by the relevant District Court. Under the Act on Commercial Register, the District Court maintaining the Commercial Register will register the new company within 2 business days from receipt of the complete application to incorporate/register the company. e. Statutory Representatives Generally, the companies are represented by their statutory representatives (i.e., a corporate body that is, by operation of law, authorized to act and sign on behalf of a company) or persons authorized to act on company s behalf based on power of attorney. Further, a special type of power of Attorney can be granted pursuant to the Commercial Code called Proxy (in the Slovak language: prokúra), under which the proxy-holder (in the Slovak language: prokurista) is registered with the Commercial Register and authorized, in general (subject to certain exemptions), to carry out all legal acts related to the operation of an enterprise. f. Winding Up of Companies The winding up of a company may be followed by an acquisition (where assets of the company are transferred to another, already existing company), a merger (where assets of the company are transferred to another, newly-established company) or a division into several companies or liquidation. The company may also transform its legal form. Baker McKenzie 7

14 Liquidation follows the decision of shareholders to wind up the company. The liquidator (in the Slovak language: likvidátor) appointed by the company performs the liquidation; if the company fails to appoint the liquidator, the liquidator is appointed by the court. The creditors are asked to present their receivables vis-à-vis the company within a period of at least three months and the known creditors are notified of the liquidation. Shareholders are not entitled to any liquidation balance until all known creditors are satisfied. g. Company in Crisis From January 1, 2016, a Slovak company (applies only to a limited liability company, a joint stock company, or a limited commercial partnership whose general partners are only legal entities, and from January 1, 2017 also to a simple joint stock company) will be deemed to be in crisis if: the company is insolvent (the insolvency of the company should be assessed using the standard insolvency tests set out in the Act on Insolvency and Reorganization); or the ratio between its equity and its liabilities is lower than 6/100 in 2017 (or lower than 8/100 in 2018 and the following years). The director(s) of the company which is in crisis must adopt reasonable measures designed to overcome the crisis. Further, the general rule is that if the company s shareholder (or another related party specifically defined in the Commercial Code) grants a loan (or performs a similar transaction) to the company while the company is in crisis, the company is not allowed to repay that loan while the company remains in crisis or if, as a result of the repayment, the company would again become a company in crisis. The director(s) of the company during whose term this prohibition is breached will be personally (jointly and severally) liable for repayment of the loan; along with them, the subsequent director(s) (appointed to their position only after the prohibition has been breached) who fail to request repayment of the loan will be co-liable for the repayment. 2.2 Types of Companies and Business Vehicles The legally recognized companies in the Slovak Republic are: (iii) (iv) (v) limited liability company (the name of the company must contain the word spoločnosť s ručením obmedzeným ; or its abbreviation s.r.o. or spol. s r.o. ); joint stock company (the name of the company must contain the word akciová spoločnosť or its abbreviation a.s. or akc. spol. ); banks, dealers, and insurance companies must be incorporated in this form; simple joint stock company (the name of the company must contain the word jednoduchá spoločnosť na akcie or its abbreviation j. s. a. ; a new type of corporate form aimed at startups and venture capital investors; limited commercial partnership (the name of the company must contain the word komanditná spoločnosť or its abbreviation k.s. or kom. spol. ); and general commercial partnership (the name of the company must contain the word verejná obchodná spoločnosť or its abbreviation v.o.s. or ver. obch. spol. ). Other business vehicles which are typically utilized by foreign investors are: branch office of foreign company (in the Slovak language: organizačná zložka podniku zahraničnej osoby), which is, however, not a separate legal entity (many banks, insurance companies, pension funds, investment companies operate in the Slovak Republic in such a form); 8 Baker McKenzie

15 Doing Business in the Slovak Republic (iii) co-operative (in the Slovak language: družstvo); and sole entrepreneur (in the Slovak language: fyzická osoba - podnikateľ) under a trade license. All of the above vehicles must be registered with the Commercial Register, save for a sole entrepreneur. All filings are to be done in the standard forms prescribed by the Ministry of Justice of the Slovak Republic. In the case of statutory representatives, who are not citizens of EU member countries or citizens of an OECD country, a residence permit visa will be required by the Slovak Commercial Register. In addition, Slovak law provides for the possibility of establishing associations of individuals or legal entities (in the Slovak language: združenie) under Section 829 et seq. of the Slovak Civil Code. Such associations, however, do not need to be registered and are not legal entities Limited Liability Company s.r.o. (Sections of the Commercial Code) The principal features of a limited liability company are as follows: (iii) (iv) (v) There must be a minimum of 1 (one), and a maximum of 50 (fifty), participants in a limited liability company ( s.r.o. ). A one-man limited liability company cannot be the sole founder or sole participant of another limited liability company. An individual (physical person) can be a sole participant in no more than three limited liability companies. An s.r.o. is not a flow-through entity for Slovak tax purposes. If the s.r.o. is to have one participant only, the company can be formed on the basis of a simple deed of foundation (in the Slovak language: zakladateľská listina), with no need to prepare a detailed and lengthy constituent document (or by-laws). If there is to be more than one participant, a memorandum of association (in the Slovak language: spoločenská zmluva) must be prepared and signed. Both the deed of foundation and memorandum of association must be signed before a Slovak notary by the sole founder/all founders. 5 Since 1 October 2012 an s.r.o. cannot be established by a Slovak founder that has tax arrears in the Slovak Republic. A founder of an s.r.o. has to obtain consent from the relevant Slovak financial authority proving that the founder does not have any tax arrears. The consent has to be submitted to the competent Registration Court together with other documents required for incorporation of the s.r.o. This obligation to obtain prior consent of the financial authority does not apply to founders that are non-slovak individuals or non-slovak legal entities. No shares are issued to the participants; rather, the participant becomes a holder of a participation interest (ownership interest) in the s.r.o. upon incorporation of the s.r.o., or can purchase such ownership interest by a transfer agreement, which must be acknowledged before a notary public (subject to any transfer restrictions or pre-emption rights contained in the s.r.o. s deed of foundation/memorandum of association, by-laws or the Slovak Commercial Code). 5 The memorandum of association/deed of foundation must contain the following: the name of the company and its seat (i.e., its registered office); names and seats/residence of the participants; (iii) scope of business activities (no catch-all purpose clause is permitted under Slovak laws); (iv) the amount of the registered capital and the amount of each participation interest and the amount paid up; assessment of the in-kind contribution appraisal is necessary; (v) names, residences and birth numbers of the first directors and the manner in which they act and sign on behalf of the company (in the case of a non- Slovak citizen, the date of birth is used instead of birth number, if no birth number has been assigned to that non-slovak citizen); (vi) identification of the custodian of the participants contributions; (vii) the amount of reserve fund, the amount up to which the company is obliged to supplement this reserve fund, and the manner of supplementation; (viii) benefits provided to the founders of the company, if any; and (ix) likely costs and expenses necessary for establishment and incorporation of the company. Baker McKenzie 9

16 (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) The liability of participants in an s.r.o. is limited (up to the unpaid value of their ownership interests). No piercing of the corporate veil, as a means for attributing corporate liability to owners (shareholders, participants), of a legal entity is available. The general rule is that participants are not liable for a company s debts. An s.r.o. is under the obligation to create a reserve fund at the time and in the amount determined in its memorandum of association / foundation deed. Unless the reserve fund was already created at the time of the s.r.o. s incorporation, the s.r.o. is obliged to create it from the net profit reported in the annual financial statements for the first year of the s.r.o. s profitability, namely in an amount of at least 5% of the net profit but no more than 10% of the s.r.o. s registered capital. An amount determined in the memorandum of association / foundation deed of at least 5% of the net profit reported in the annual financial statements has to be annually transferred by the s.r.o. to the reserve fund until the reserve fund reaches the amount of the reserve fund determined in the memorandum of association / foundation deed, such amount being equal to at least 10% of the s.r.o. s registered capital. The ownership interest in the company can be divided, inherited, transferred, joined or pledged (can serve as a security interest). The security interest over the ownership interest is validly created at the moment of its registration with the Commercial Register. Since 1 October 2012, if a participant holding the majority ownership interest in the s.r.o. wishes to transfer the majority ownership interest, it is necessary to obtain prior consent from the relevant Slovak financial authority in relation to the participant (transferor) and the acquirer (transferee). Such consent will be granted by the authority if the participant (transferor) and the acquirer (transferee) do not have tax arrears in the Slovak Republic. This obligation to obtain prior consent of the financial authority does not apply to participants (transferors) and the acquirers (transferees) that are non-slovak individuals or non-slovak legal entities. The company can acquire its own ownership interest only in certain circumstances. Further, a controlled company cannot acquire an ownership interest in the controlling company, save if such is acquired through inheritance or if the controlled company takes over all rights and liabilities of the participant former owner of the ownership interest. An s.r.o. has no board of directors. The mandatory bodies of the company are general meeting of the participants; and directors executives (one or more) who represent the company (in the Slovak language: konateľ). 6 There is no need to establish a supervisory board - establishment of a supervisory board is discretionary. The powers of directors can only be limited by the company s memorandum or by the general meeting; however, such restrictions have no effect vis-à-vis third parties. Therefore, the company will be bound by the ultra vires activities of its directors - even if such limitations of powers were known to a third party; the company, however, would in such a case have a right to indemnification from such director(s) for any such acts exceeding the internal restrictions on his/her/their powers. Any agreement(s) between the company and its directors intending to exclude or limit the director s liabilities in the events of a breach of their duty of care or duty of loyalty are prohibited. The company, however, may waive its claims for damages which the company can have against the directors (or agree with them on settlement of such claims), but not earlier than three years after the claims have arisen, and only on the condition that such waiver (settlement) is approved by the company s general meeting and such approval is not 6 A director, acting as a statutory representative of the company, who is neither a Slovak citizen, nor a citizen of an EU member country, nor a citizen of an OECD country, must have a Slovak resident permit. 10 Baker McKenzie

17 Doing Business in the Slovak Republic formally contested by the company s participants who hold in aggregate at least 10% of the contributions into the registered capital of the company. (xiv) (xv) The minimum registered capital (i.e., the minimum capitalization) is EUR 5,000. If there is one participant, the initial capital must be fully paid by the time of submission of the petition for registration of the company with the Commercial Register. If there are two or more participants, at least 50% of the registered capital and 30% of each participant s initial capital contribution must be paid by the time of submission of the petition for registration of the company with the Commercial Register. The remainder of the initial capital must be paid within 5 years of registration of the s.r.o. with the Commercial Register, or earlier if so stated in the memorandum of association, subject to a default interest of 20%. The amount of default interest for late payment is discretionary. The minimum capital contribution of each participant is EUR 750. Changes to any information registered in the Commercial Register must be registered with the Commercial Register and the directors of the company are responsible for issuing (execution of) a complete/full memorandum of association every time such information is amended Joint Stock Company a.s. (Sections a) The principal features of a joint stock company (the a.s. ) are as follows: (iii) (iv) (v) (vi) (vii) A joint stock company may be established by one or more legal entities or two or more individuals or a combination of legal entity(ies) or individual(s). 7 A joint stock company may be established: by a private agreement on share subscription without a public offer to subscribe shares or by a public offer to subscribe shares. Regardless of the method of establishment, the registered capital of a joint stock company must be at least EUR 25,000. The shares must be completely subscribed and a minimum of 30% of the nominal value of the shares must be paid prior to the constituent general meeting of shareholders. A joint stock company is not a flow-through entity for Slovak tax purposes. Financial assistance of the company with respect to the acquisition of its shares is in general prohibited (Section161e). The shareholders are not held liable for the company s obligations; the company is liable for breach of its obligations up to the value of all its assets. A joint stock company may exist as a private or public company. It is considered to be public if part or all of its shares are admitted to trading on a regulated market located or operated in one of the Contracting States of the European Economic Area. The main difference between these two forms of companies is the restrictions on transfer, merger, squeeze rights and the reporting requirements imposed on the public companies. Capital stock is divided into shares, which can be issued as certificated shares (only registered form) or as book-entry shares (in a bearer or registered form) recorded in the Central Securities Depositary (all bearer shares in a Slovak joint stock company must be recorded in the Central Securities Depositary; therefore no true bearer shares can be issued by a Slovak joint stock company). The registered shares of the company may also be owned by two or more persons. The company can, in certain instances and under conditions laid down in the Commercial Code, acquire its own shares. 7 One individual (physical person) cannot establish a joint stock company. After the company's incorporation, all shares could, however, be acquired by one individual. There is no maximum limit as to the number of shareholders. Baker McKenzie 11

18 (viii) (ix) (x) (xi) (xii) (xiii) (xiv) The shares can be divided, transferred or the rights attached to such shares can be separately transferred or assigned. The company s bylaws may, in some manner, restrict the transfer of shares. Such restriction must be recorded and, therefore, seen on the extract from the Commercial Register. The company can issue voting or non-voting 8 preferred shares with the various series/manner of favoritism/priority to the dividends. The nominal value of preferred shares must not exceed 50% of the joint stock company s registered capital. The right to receive an advance on dividends is prohibited as well as the creation of any preemptive rights to receive the company s profit upon its liquidation. The issuance of shares with the right to interest, notwithstanding the economic result, is also prohibited. The company can neither issue different classes of ordinary shares, nor it can have non-voting ordinary shares. The joint stock company may issue convertible bonds or preemptive bonds. Such bonds may be issued up to an amount equal to 50% of the registered capital (Section 207). The mandatory bodies of the joint stock company are: the board of directors which can consist of only one member; 9 a supervisory board of at least three members; 10 and (iii) the general meeting of shareholders. At least one third of the members of the supervisory board must be elected by employees, if an a.s. has over fifty full-time employees at the time of election. A joint stock company is required to create a reserve fund in the amount of 10% of the registered capital upon its incorporation; which is to be used to finance the company s losses (or the amount exceeding this statutory amount could be used, for example, for distribution to the company s shareholders, if the board of directors or the supervisory board so decides). At least 10% of the company s annual net profits must be contributed to the reserve fund, until the amount of the reserve fund is equal to the amount stipulated in the bylaws, but not less than 20% of the company s registered capital (Section 67, Section 217). The minority shareholders rights (shareholders holding shares, the nominal value of which amounts at least to 5% of the registered capital, or less if stated so in the company s by-laws, and who hold such shares for more than 3 months) consist of a right to request the board of directors to convene an extraordinary general meeting with a specified agenda, request the board of directors to incorporate a matter designated by the minority shareholders into the agenda of a general meeting or request the board of directors to commence an action for payment of the issue price of shares against defaulting shareholders or in order to return payments, which the company paid contrary to the provision of the Slovak Commercial Code to its shareholders; request the supervisory board to inspect the performance of powers of the board of directors in certain matters; raise claims for damages or other claims in the company s favor against the board of directors; and (iii) to commence a derivative action suit in the above (Sections 181 and 182). 8 Such non-voting preferred shares will temporarily acquire voting rights when the general meeting decides that no preferred dividends will be paid or when such payment is delayed. 9 A member of the board of directors who is non-slovak, nor a citizen of an EU member country, or citizen of an OECD country, must have a Slovak residence permit. 10 There is no need for a member of the supervisory board who is non-slovak to have a Slovak residence permit. 12 Baker McKenzie

19 Doing Business in the Slovak Republic General Commercial Partnership v.o.s. (Sections 76-92) The principal features of a general commercial partnership are as follows: (iii) (iv) (v) (vi) A general commercial partnership is a legal entity of at least two persons who carry out business activities under the same business name. The Articles of Incorporation (partnership agreement) must contain the business name and the seat of the company; identification of the partners and the scope of business activities. Each partner is a general partner, i.e., all partners are jointly and severally liable for all obligations of the partnership (a new partner is liable for the obligations of the partnership incurred prior to his/her accession to the entity; however, he/she could require from other partners to be indemnified for any payments paid by him/her and compensated for any associated damages; the departing partner is liable for the obligations of the partnership incurred prior to his/her exit); No contribution or capitalization is required by law to establish a legal entity. Each partner is authorized, by law, to act on behalf of the partnership, unless otherwise stated in the Articles of Incorporation. Such statutory rights of only some of the partners are effective and may be enforced against third parties, if the name of the partners entitled to act on behalf of the partnership is entered into the Commercial Register (evidenced by the extract from the Commercial Register). The profits are shared equally among the general partners, unless otherwise stated in the Articles of Incorporation. The partnership may be a flow-through entity for Slovak tax purposes Limited Commercial Partnership k. s. (Sections ) This partnership has the features of the general partnership and the limited liability company. The principal features of a limited commercial partnership are as follows: (iii) (iv) (v) A limited commercial partnership is a legal entity with at least one limited partner (in the Slovak language: komanditista) and at least one general partner (in the Slovak language: komplementár). The Articles of Incorporation (partnership agreement) must contain the business name and seat of the company, identification of the partners limited partners (the amount of their contribution) and general partners as well as the scope of business activities. The minimum limited partner s statutory contribution into the initial capital of limited commercial partnership is EUR 250. Limited partners are liable up to the unpaid amount of their contributions; the general partners faces unlimited liability with respect to all obligations of the partnership. Only the general partner is authorized to participate in the partnership s business management and to act on behalf of the partnership as its statutory representative. In other matters, general partner(s) and limited partner(s) decide jointly by a majority of votes, unless the Articles of Incorporation (partnership agreement) states otherwise. Limited partners are liable to the same extent as general partners for obligations incurred under contracts entered into without authorization (e.g. where no ad hoc power of attorney was granted by the partnership). Baker McKenzie 13

20 2.2.5 Branch Office The principal features of a branch office are as follows: (iii) (iv) (v) A branch office is not a separate legal entity; as a result, the foreign legal entity which has established the branch office would be liable for all obligations and consequences resulting from the activities of the branch office in the Slovak Republic. There are no capitalization requirements for a branch (i.e., no statutory registered capital is required). The authorized representative of a branch office in the Slovak Republic (if neither a Slovak or EU country citizen, nor a citizen of an OECD country) must possess a Slovak residence permit. Subject to the provisions of any applicable tax treaty, a branch office would be subject to Slovak taxation on all income attributed to the activities of the branch office. A branch is required to maintain its books on an accrual basis Co-operative The principal features of a co-operative are as follows: A co-operative is a legal entity established for the purpose of either undertaking business or satisfying the economic, social or other needs of its members. A co-operative is an association of an unlimited number of members; new members may join and the existing members may leave provided the co-operative always has at least five members, or at least two members that are legal entities. (iii) The minimum statutory registered capital is EUR 1,250. (iv) (v) (vi) A co-operative is required to create an indivisible fund at least in the amount of 10% of the registered capital upon its incorporation. This fund must be replenished on an annual basis by at least 10% of the co-operative s annual net profit, until the amount of the indivisible fund is equal to one half of the registered capital of the co-operative. The members are not held liable for the co-operative s obligations; the co-operative is liable for breach of its obligations up to the value of all its assets. The mandatory bodies of a co-operative are: Members Meeting (in the Slovak language: členská schôdza), Board of Directors (in the Slovak language: predstavenstvo) and Audit Commission (in the Slovak language: kontrolná komisia) Simple Joint Stock Company (Sections 220h - 220zl) The principal features of a simple joint stock company are as follows: As of January 1, 2017, a simple joint stock company has been introduced as a new business vehicle and a hybrid type of corporate form, combining various features of a limited liability company and a joint stock company. Offered under flexible rules, a simple joint stock company should be of particular interest to risk and venture capital investors and starting entrepreneurs as it enables effective internal and external arrangement of company relations. A simple joint stock company may be established by one or more legal entities or individuals or a combination of legal entity(ies) or individual(s). The registered capital of a simple joint 14 Baker McKenzie